Pretax cost of first issue Aftertax cost of first issue Pretax cost of second issue Aftertax cost of second issue Aftertax cost of debt Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The book value of the debt issue is $85 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 59 percent of par. What is the company's total book value of debt? The total market value? What is your best estimate of the aftertax cost of debt? The company's tax rate is 22 percent. Settlement Maturity Coupon rate Price (% of par) Redemption value (% of par) Payments per year Book value of debt issue 01/01/00 01/01/27 7% 93 100 2 $ 85,000,000 Second bond issue: Settlement date Maturity date Annual coupon rate Coupons per year 01/01/00 01/01/12 0% 2 Bond price (% of par) 59 Redemption value (% of par) 100 Book value debt issue $ 35,000,000 Tax rate 22% Book value of debt Market value of first bond Market value of second bond Market value of debt Market value weight of first bond Market value weight of second bond Pretax cost of first issue Aftertax cost of first issue Pretax cost of second issue
Pretax cost of first issue Aftertax cost of first issue Pretax cost of second issue Aftertax cost of second issue Aftertax cost of debt Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The book value of the debt issue is $85 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 59 percent of par. What is the company's total book value of debt? The total market value? What is your best estimate of the aftertax cost of debt? The company's tax rate is 22 percent. Settlement Maturity Coupon rate Price (% of par) Redemption value (% of par) Payments per year Book value of debt issue 01/01/00 01/01/27 7% 93 100 2 $ 85,000,000 Second bond issue: Settlement date Maturity date Annual coupon rate Coupons per year 01/01/00 01/01/12 0% 2 Bond price (% of par) 59 Redemption value (% of par) 100 Book value debt issue $ 35,000,000 Tax rate 22% Book value of debt Market value of first bond Market value of second bond Market value of debt Market value weight of first bond Market value weight of second bond Pretax cost of first issue Aftertax cost of first issue Pretax cost of second issue
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Pretax cost of first issue
Aftertax cost of first issue
Pretax cost of second issue
Aftertax cost of second issue
Aftertax cost of debt
Transcribed Image Text:Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 3 years ago. The
bond currently sells for 93 percent of its face value. The book value of the debt issue is
$85 million. In addition, the company has a second debt issue on the market, a zero
coupon bond with 12 years left to maturity; the book value of this issue is $35 million,
and the bonds sell for 59 percent of par. What is the company's total book value of
debt? The total market value? What is your best estimate of the aftertax cost of debt?
The company's tax rate is 22 percent.
Settlement
Maturity
Coupon rate
Price (% of par)
Redemption value (% of par)
Payments per year
Book value of debt issue
01/01/00
01/01/27
7%
93
100
2
$
85,000,000
Second bond issue:
Settlement date
Maturity date
Annual coupon rate
Coupons per year
01/01/00
01/01/12
0%
2
Bond price (% of par)
59
Redemption value (% of par)
100
Book value debt issue
$
35,000,000
Tax rate
22%
Book value of debt
Market value of first bond
Market value of second bond
Market value of debt
Market value weight of first bond
Market value weight of second bond
Pretax cost of first issue
Aftertax cost of first issue
Pretax cost of second issue
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